Bank of New York Mellon Corp., meet P. Edward Garden.
The New York-based bank (BK, Financial) was founded by Alexander Hamilton in 1784, three years before the U.S. Constitution was written. It is the investment manager for $1.6 trillion and the custodian for $28.5 trillion.
Garden for the past decade has been chief investment officer at Trian Partners, an activist investing company headed by Nelson Peltz. He often represents Trian’s point of view on boards of companies where Trian owns a stake.
He is a director at Wendy’s Co., Chemtura Corp., Family Dollar Stores Inc., and – as of last month – Bank of New York Mellon.
Trian has been accumulating Mellon stock for about a year. Last year it made four purchases, totaling more than 30 million shares. On Feb. 17, it bought another 891,190 shares, raising its total to 31.8 million shares. Garden took his board seat two days later.
I don’t know what Garden will say in board meetings, but my guess is that he will advocate for Mellon to split into two companies, a custodian and an asset manager. That might unlock some hidden value in the stock, which trades for 14 times recent earnings and only 11 times this year’s expected earnings.
Even without any strategic changes, I think BNY Mellon stock looks attractive now. Investors are worried about banks’ exposure to energy-industry loans, and about the Federal Reserve toying with the idea of negative interest rates.
Those worries are legitimate, but I feel that the present stock price fully reflects the concerns. Mellon stock was briefly above $60 a decade and a half ago. Today it’s at $38. Activism by Peltz and Garden might be the trigger to get this sleepy stock moving again.
Hertz
Speaking of activist shareholders, Carl Icahn (Trades, Portfolio) has been adding to his big stake in Hertz Global Holdings Inc. In December Icahn’s entities spent almost $168 million to buy another 11.8 million shares of the rental-car giant. Icahn now controls 63.7 million shares, or 15% of the company.
Hertz has the largest market share at the high end of the car-rental market, with the Hertz brand. Under the Thrifty and Dollar brand, it has a decent chunk of the lower end as well.
Icahn has three seats on what soon will be a nine-person board. So he’s in the driver’s seat. And certainly there is turnaround potential here. The stock sells for 0.45 times sales, and if Icahn can get the profit margin up, it will get a better multiple.
It’s a big challenge, however. The company has been plagued by accounting errors, uninspired management, don’t-care employees and a high level of debt – recently seven times stockholders’ equity. The debt alone would cause me to stay away, rather than follow in Icahn’s footsteps.
Boston Beer
If you like the beer, should you like the stock?
In the case of Boston Beer Co. (SAM, Financial), the maker of Sam Adams beer, I think the answer is no. Due to a poor harvest, the price of hops has risen lately. And the stock, while well off its peak, seems expensive to me at than 27 times earnings and five times book value (corporate net worth per share).
Perhaps Boston Beer executives were thinking of some of these same things. Four insiders have sold some shares this year.
Track Record
Beginning in 1997, I’ve written more than three dozen columns on purchases and sales by company insiders. I’ve tabulated the results for all those written in 1999 or later.
The stocks that displayed insider buying and that I recommended have beaten the Standard & Poor’s 500 Index by an average of 6.8 percentage points in a long series of overlapping 12-month periods.
Stocks I said I would avoid, even though insiders were buying them, have trailed behind the S&P 500 by a full 17 percentage points.
All of that pleases me, of course. But there are also some less pleasing results.
Stocks where I noted that insiders were selling shares have just about matched the index, trailing it by a mere 0.05%.
And then there were a few stocks in which I noted insider buying, but either took no stand or made ambiguous comments. Those have beaten the index by 15.9 percentage points.
Bear in mind that results for my column picks are theoretical and don’t reflect actual trades, trading costs or taxes. The record of my column selections shouldn’t be confused with the performance I achieve for clients. And past performance doesn’t guarantee future results.
